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March 31, 2010

Small scale farmers in Kenya increasingly look to outgrowers’ contracts

by Steve Mbogo

An emerging agribusiness model where companies are contracting small holder farmers to supply food and beverage processing raw materials is promising to stop the poverty cycle driven by the middle men who take up to a third of farmers’ sales.

Coca Cola and East Africa Breweries have started applying this concept that could result into higher income for small scale farmers, whose motivation for commercial farming is always dimmed by lack of market or rock bottom prices for produce especially when there is oversupply.

While this arrangement has existed between the farmers and mostly small food processing companies, the entry of the two companies with higher product output and trans-national presence is significant because they are able to take in a big number of farmers.

The concept small holder farmers being contracted outgrowers has worked successfully in the tea sector, but has fared poorly in coffee, sugar and pyrethrum sectors because of mismanagement.

Though in aforementioned arrangements, farmers usually own the processing units through cooperative societies.

Small scale farming remains the largest employment opportunity in Kenya and is central to the empowerment of women, who form the bulk of the workforce, estimated at 82 per cent, according to the World Bank. The income generated here pays for food, education and medicine.

But for many years, income from small scale farming has been inadequate because of myriad of factors but principally market access that restricts generation of revenue that can be used to purchase inputs like seeds and fertilizer for the next planting season or for crop management.

The brokers networks that distorts the market to benefit from rock bottom farm gate prices has been a major problem.

Increasing direct market access for small holder farmers and on the farm processing of produce to add value; like turning fruits harvested into pulp, are two key factors identified by agro economists as important in improving farmers’ income.

Kenya’s Vision 2030 also targets to “raise incomes in agriculture, livestock and fisheries by processing and adding value to produce before it reaches the market.”

These measures, according to the Vision 2030 are expected to generate additional Sh80-Sh90 billion increase in gross domestic product and result in cultivation of additional 1.2 million hectares of new land.

The Coca Cola project is expected to be rolled out soon and will run for four years. The project will benefit 50,000 farmers in Kenya and Uganda. It is being implemented through a development group, TechnoServe, with funding from the Bill and Melinda Gates Foundation.

While it was not possible to know when the programme will be launched, farmers interviewed in Thika were optimistic of increased earnings and possible increase in acreage under passion fruits.

“If the demand is high, I will replace all my coffee stems with passion fruits. I already have the knowledge to grow passion after being an out grower for an exporter,” said Ephantus Mwangi, who intercrops passion fruits with coffee on his one acre farm.

Most farmers in Thika’s Gatundu area intercrop passion fruits with coffee stems and bananas. They also grow maize and beans for family consumption.

The villagers have been growing passion fruits for brokers who then export the fruit or sell to local beverage manufacturers.

The new partnership that will see such farmers sell their crop to Coca Cola is expected to double the income of those farmers.

Mr Mwangi earned about Sh134,000 from passion fruit sales last year, which was the family’s main source of income. If that was to double, and maintain the demand for fruits for four years, he sees his family fortunes changing.

“You look at other investments, like buying more land, buying an additional cow and taking the children to college,” said the father of five children.

Today, Coca-Cola’s fruit juice and mango supply chain relies on fruit juice concentrate imports.

Farmers like Mr Mwangi will be helped by TechnoServe to increase yields, improve their record keeping skills and quality control standards said the group’s director of marketing and communications Luba Vangelova.

Another major goal of the project will be to create farmer-based organisations at the grassroots level to empower farmers handle all their production and related issues without depending on brokers.

“Farm gate prices can increase by up to 30 per cent when farmers bypass middlemen to sell directly to the market,” said Luba Vangelova.

Kenya produces about 40,650 metric tonnes of passion fruits every year with 36 per cent of total output coming from the Rift Valley Kenya Horticultural Development Programme (KHDP).

This volume could increase significantly if farmers are given a ready market that pays them promptly.

For mango farmers, the Coca Cola project is a God-send because the sector has virtually collapsed at the mercy of oversupply during harvest, which knocks down the prices, resulting in massive fruit losses.

“The main challenge with mango farming is that the crop matures at once across the country and has one season. So when it is harvested and gets into the market, there is oversupply, prices crumble,” said Willis Owino, a mango researcher at the Jomo Kenyatta University of Agriculture and Technology.

The sector is estimated to be worth Sh30 billion.

Market projections reveal that fruit consumption is expected to grow at six per cent annually in Africa (2007 figures).

There is also an annual five per cent growth in European and Asian export demand according to the Food and Agriculture Organisation.

A similar project, but involving growing of sorghum has also been started by East Africa Malting, a wholly owned subsidiary of East Africa Breweries.

Sorghum belongs to a group known as “orphan crops” whose growing was overshadowed when government polices encouraged farmers to abandon them in favour of maize and beans by promoting the two as food security grains.

Data from the United States Department of Agriculture shows that production of sorghum in Kenya has dropped from 223 metric tonnes in 1976 to 130 metric tonnes in 2009.

Sorghum unlike maize can grow in semi-arid areas and is sighted as one of the crops that will help Africa mitigate against climate change by growing foods that are drought tolerant.

Kenyan Agricultural Research Institute (Kari) scientists said 70 per cent of Kenya is now unable to produce maize as former growing areas are turning into semi arid areas conducive for growing sorghum, a drought-resistant plant.

At least 10,000 farmers will be beneficiaries of this project that also includes Africa Harvest, a non-profit group and Equity Bank.

East Africa Malting is investing in sorghum as a malting substitute.

The project has been implemented in the lower zones of Eastern Province; Kitui North, Mbeere, Masinga, Tharaka, Embu, Maara, Meru South , Imenti North, Imenti South and Imenti Central.

These areas are characterised by high levels of poverty due to the dry climate, repeated crop failure and recurrent drought.

The project is also creating opportunities for entrepreneurs to dry, bulk and transport the grain from the collection centers to EAML.

The project is meant to develop a dedicated source of raw materials for East Africa Breweries. It will also help improve Kenya’s food security situation and diversify the type of grains the country can depend on in addition to maize and beans.

Equity Bank is offering low interest loans to farmers to buy seed and farm inputs while Africa Harvest provides the technical support to ensure the quality yields.

EABL requires more than 60,000 tonnes of barley every year for making various beer brands.

The company plans to substitute about three-quarters of required barley with local sorghum.

Wycliff Mwema of Dik Engineering, the makers of fruit processing machines said farmers need not wait for supply contracts because they can also process fruits as a group at the village level and sell it as fruit pulp.

“We have noticed an increase in demand for machines that extract pulp and those that pasteurise fruit juices in the recent past. I think farmers have started appreciating the value of processing fruits,” said Mr Mwema.

Business Daily Africa

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